Fundamental AnalysisIndia

TATA Motors – Fundamental Analysis

Overall Rating: Bullock Cart

What is the national economic outlook?

  • How well are we recovering from the pandemic? [High 🟢]
    • Overall the Indian economy is posting a strong recovery post the 2nd COVID wave. Though there is recent concern on the rising inflations, the majority of the pundits still believe it to be transitory.
  • Change in purchasing power [High 🟢]
    • Based on FY20 data, the overall purchasing power of the Indian customer is on the rise and poses a strong economy in the immediate future.

What is the industry outlook?

  • What is the current industry category for the company?
    • Automobile manufacturing company
  • What are the growth prospects? [High 🟢] 
    • Between FY16-20, domestic automobile production increased by 2.36% CAGR, with 26.36 million vehicles produced in FY20. In total, domestic auto sales increased to 21.55 million vehicles in FY20, representing a 1.29% CAGR between FY16-FY20.
  • What is the competitor landscape? [Medium🟠]
    • The sector is mildly concentrated with the strong competition posed by both Indian and international players. Tata Motors biggest competition is by its Indian counterpart – Maruti Suzuki and International players – Hyundai, Toyota and Honda, which serve customers in a similar price range.

What is the company profile?

  • Business Overview
    • Tata Motors is one of the world’s largest manufacturers of automobiles. It offers a vast selection of cars, SUVs, trucks, buses, and military vehicles. India’s largest OEM, Tata Motors, provides an extensive array of integrated, smart and e-mobility solutions.
  • Financials
    • How are company financials changing?
      • Tata Motors reaffirms plan to turn debt-free by FY24 despite negative impact of Covid, the same can be observed from the last quarterly results where the debt has been reduced substantially.
      • Tata Motors consolidated net loss for the quarter ended 30 June, 2021 narrowed to ₹4,450.92 crore as compared to net loss of ₹8,437.99 crore in the year-ago period.”
  • What are the stand-alone future financial prospects and future pipelines? [ Medium 🟠]
    • Tata Motors group will invest ₹28,900 crore across its domestic business and JLR in 2021-22, and in the development of hydrogen fuel cell vehicles, Chairman N. Chandrasekaran said. 
    • The company will also look to raise capital separately for its electric vehicles (EV) business ‘at an appropriate time.
    • JLR has been the key driver of their recent growth and the company plans to capitalise on that at the same time building new capabilities in EV space.
  • How are fundamental rations behaving vs peers? [ Medium 🟠]
    • Compared to the peers, Tata motor’s negative earnings puts P/E in a relatively low negative range. Ideally, low P/E is the indicator of stock being underpriced but this might not be the direct interpretation for a company making negative earnings.
  • Beyond the numbers – ProCapitas Think Tank 🧠
    • Let’s look beyond these numbers and try to answer – “What Matters”
      • What exactly does negative P/E mean? Is the stock undervalued and a good buy?
        • Well, this would be my direct take if earning would have been relatively positive. But when we look at companies with negative earnings, future prospects and relative comparison of other ratios become the key criteria on deciding if it’s still a good buy.
        • Current Price/Sales ratio still indicates the company to be trading at discount compared to the peers.
        • Is the company losing the investor money?
          • Well the short answer is “Yes”. Company has been reporting negative ROE for three year straight indicating loss of investor money. But, according to Tata Motor, the majority of this could be attributed to COVID and initial investments which are still to pay off in coming years.
        • Can Tata Motor still target debt free plans by 2024?
          • Well this sounds tricky for now. Company has recently spent 4% of their top line in interest expenses. Given the current structure and fear of the next COVID wave the uncertainty of it becoming debt free are more than ever.

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